UPDATE 1-Chrysler CEO says Fiat deal to close Friday

* Chrysler CEO Nardelli says sale to Fiat to close Friday

* Nardelli describes last-minute talks to avoid bankruptcy

* Judge expected to overrule hundreds of objections

* Opponents planning appeals
(Recasts first sentence, adds Nardelli comments, other
details)

By Tom Hals

NEW YORK, May 28 (Reuters) - Chrysler expects to close its
sale of most assets to Fiat as early as Friday, its chief
executive told a bankruptcy hearing which is considering whether
to approve the transaction.

The automaker seeks approval to sell its stronger operations
to a "New Chrysler" owned by Italy's Fiat (FIA.MI), labor unions
and the U.S. and Canadian governments, in exchange for $2
billion paid to lenders.

Approval would be a victory for the White House, which had
been criticized by many bankruptcy specialists for setting a
seemingly unrealistic time frame of 30 to 60 days in which to
bring the automaker's operations through Chapter 11.

Nardelli was answering lawyers' questions when he mentioned
that he expected the sale to close on Friday.

The comment appeared to surprise the attorney who was
questioning him, who was representing Indiana pension funds
opposed to the Fiat deal.

Tom Lauria of White & Case asked Nardelli if he expected
the sale to close with necessary antitrust approval, which he
said it did.

During questioning about liabilities being transferred to
the New Chrysler, Nardelli pointed out that while the pensions
of hourly workers were carried out of bankruptcy, others were
not. "Lee Iacocca lost his pension," he said, referring to the
automaker's former chairman.

Lawyers opposing the sale said on the sidelines they expect
the judge to approve the sale, even though hundreds of
objections had yet to be heard. Lauria and other attorneys said
they will ask to have the closing postponed to give district
court time to hear an appeal.

Opponents of the sale focused testimony on last-minute
negotiations to avoid bankruptcy, the role of the U.S.
government and various liquidation appraisals performed on the
company.

Participants in the hearings said the length of the
testimony and nature of the questioning suggested sale
opponents were building a record for use in likely appeals.

Those opposing the sale include some of the nearly 800
dealers Chrysler wants to shutter, as well as debtholders and
retirees. Suppliers, which are owed more than $5 billion, have
also objected.

EXHAUSTED OPTIONS

Lawyers for Chrysler led Nardelli to discuss the necessity
of government funding to prevent what management said would
have been a "freefall" liquidation, and steps to find
alternatives.

Nardelli described how he was denied a last-minute request
by debtholders to meet so he could explain the final offer
before a government deadline to reach a deal expired.

"We turned every stone, exhausted every option," said
Nardelli. "As painful as this was, in 38 years this was the
first time I had to go into bankruptcy -- and it's not
something I want to get good at -- but it best served all the
constituencies."

Opponents of the sale tried to focus Nardelli's testimony on
the role of the government's auto task force, which appeared
from e-mails read in court to have intervened to discourage
last-minute attempts to avoid bankruptcy.

One e-mail from a member of the auto task force said "it's
over" as an adviser to Chrysler sought to find a way to reach a
settlement on the day before the Chapter 11 filing, when it
appeared $250 million was needed for an agreement.

"The president doesn't do second-round negotiations," the
e-mail read, according to Lauria.

Lauria also read several e-mails in which Chrysler
executives appeared to indicate they felt the U.S. Treasury had
taken control of negotiations.

Nardelli emphasized that the U.S. government was the only
source of funds to keep Chrysler from liquidation, which he
said would have been "cataclysmic."

The case has sailed through court, largely thanks to
government financing of the bankruptcy and a willing buyer in
Fiat. To preserve cash, Chrysler shut its operations when it
filed for bankruptcy, which added to the urgency of the case.

The automaker argued a quick sale was critical to preserve
the value of its operations, save more than 100,000
auto-related jobs and prevent further economic shock waves.

The sale would free the automaker of $6.9 billion in loans
and cumbersome retiree benefits that it blamed for its
struggles against more nimble competitors. By teaming up with
Fiat, Chrysler could expand beyond the U.S. market and gain
technology needed to diversify a product line now heavily
weighted toward trucks and SUVs.

The case is In re Chrysler LLC, US Bankruptcy Court,
Southern District of New York, No. 09-50002.
(Reporting by Tom Hals and Chelsea Emery; additional reporting
by Emily Chasan; Editing by Lisa Von Ahn and Matthew Lewis)